ELEC4445 Quiz 200708
2008 Question 1. In finance, a bond is a debt, in which the authorized issuer (e.g. the Australian government) owes the holder (e.g. yourself) a debt and is obliged to repay the principal and interest at a later date.AN INVESTOR can buy a government bond for $45,000 that will pay $50,000 in a year’s time #What is the rate of return on this bond? :ROR or ROI(return on investment) is calculated as follows ROR = \frac{FV -PV}{PV} and is essentially the interest rate. In this case it is 11%pa #If the interest rate is 9% p.a. compounded annually, what is the present value of the bond? : PV = \frac{50K}{(1+0.09)^1} = 45871 #What is the Net Present Value (NPV) of the bond? Base on this, should the investor buy the bond? : NPV = \frac{50K}{(1+0.09)^i}-C_0 = 871 According to NPV YES THE TIME TO BUY IS NOW #If the interest rate rises to 12%, based on the NPV calculation, should the investor buy the bond? : \frac{50K}{(1+0.12)^i}-C_0 = -350 NO DONT BUY!! THATS A DONT BUY Question 2. uBid.com gives the following overview about itself: Over the last 10 years, uBid has helped over 7,000 businesses sell more than $2 Billion of excess inventory, and saved customers hundreds of millions of dollars in the process. ... Our auctions start as low as $1 and we also have outrageously low “uBuy It Now” prices. Name and describe the business model that uBid.com implements words? Give an example of a complementary revenue stream that uBid.com could implement in addition to its main one? Ubid.com is using an Intermediary internet business model where it creates a marketplace allowing external buyers and sellers to make transactions with one another. Generally intermediary businesses charge a commission on each sale i.e. a take a percentage that the item is sold for. The comission maybe charge to the buyer and/or seller. They may also charge a listing fee, which is a payment made by the seller in order to advertise/list their items in the market place. Targetted advertising is another revenue stream that could easily be included into Ubid business model. As sellers are generally looking for particular items, Ubid could place ads on their pages which advertise items of a similar nature, offered on their site or off-site. This of course my be used careful as it may cannibalise the revenues they could make off the sale of an item on their own page. Question 3 In his guest lecture Summertown Wine Café, Mr Steven Scheeler, explained his approach to build his business. Describe in 50 words or less his long term business model and his preferred exit scenario. Question 4 ' Enron was named as America’s Most Innovative Company by Fortune Magazine for 6 consecutive years – from 1996 to 2001 – for the development of commodity trading. Name two of those commodities and explain in 50 words of less what is meant by commodity trading.' Commodity markets are markets where raw or primary products are exchanged. Commodity trading has been around for hundreds of years where ever primary products are exchanged. Enron development commodity trading to include less tangile items such as Electricity and Broadband. Generally when a commodity is traded the physical commodity must be taken, Enron revolutionised this to allow commodities to be traded without having to accept phyiscal good, allowing standard financial tools used in stock trading to be used. Question 5 ' Explain the difference between stocks and stock options in 50 words or less.' Stocks are the rights to a division of a particular company. Stock options on the other hand are the right to purchase a division of a particular company at a set price at a later date. The advantage being that the individual with the stock option can wait to see what the market value of the stock is at a later date without having to commit to buy the stock. Reducing the risk. Question 6 Arguably, the granting of rights (patents, trademarks, etc) to innovators have some benefits and some drawbacks. Name two such drawbacks together with a brief explanation for both. Temporary monopoly: By granting patents a temporary monopoly is formed with only the patent holder able to produce the technology. This will cause the products to be more expensive than in a fair market situation. Question 7 For the last financial year, Apple Incorporated, has posted revenues of 30.8 billion, net profit (earnings) of 4.6 billion and currently has a market capitalization of 123.9 billion. What is the price/earning ratio (P/E ratio) of Apple? On that basis, would you say that Apple shares are undervalued, at fair value or overvalued? p/e = 27. Overvalued yo 2007 Question 1 Consider the following alternatives available to a corporation with $100m in surplus cash: Option 1: Invest $100m in a project paying $106m in one year Option 2: Pay $100m in dividends, which shareholders can reinvest at 7% (presumably at the bank)Which option is best for the shareholders and why? (~25 words) Calculate the NPV for the proposed project. NPV = -934K Paying dividends to the shareholders is the best option for the shareholders as they stand to gain more from investing the money in the bank rather than in the new project. The NPV verifies this. Question 2 PATENT AND USAGE. Mr Malcolm Donnell from Sydnovate – the commercialisation office at Sydney University –stated in a presentation in Leura, on August 3rd 2007 that “without patents, many inventions will never be used”. Although, your lecturer largely disagrees with this statement, explain the logic followed by Mr Donnell. Question 3 PATENT LANDSCAPE. In the context of your work, you come up with an innovative idea. After the appropriate patent search, you realize that this invention is not patented but that it relies on three existing inventions that are covered by patents. Does this fact stop you from patenting your invention? (~25 words) Does this fact stop you from commercialising your invention? (~25 words) Question 4 INCENTIVES. Reporting on Sol Trujillo – CEO of Telstra – The Australian wrote on September 7th 2005 “The Australian understands that the performance hurdles associated with incentive plans included in his pay package will be set only after he hands down Telstra's operational review next month.” Explain how the interests of Mr Trujillo and those of Telstra are misaligned and have for consequence that the interest of Telstra’s shareholders are not well served (~50 words). Question 5 EXIT SCENARIO. Raising money through an initial public offering – or IPO – is the dream of many entrepreneurs. We have discussed in class four of the drawbacks associated with IPOs : name and detail two of them. ''' Question 6 '''SEA CHANGES. We discussed how technology – through disruption or continuous evolution – can create major market opportunities, also known as sea changes. Give a specific example of such technological impact by (i) specifying the technology, (ii) describing its impact and (ii) identifying companies and/or market segments influenced or created (~50 words).